Nordic welfare state scaling down old model

The Nordic public sector is being cut back due to economic pressure, political shifts and an emergence of free-market models

By Soeren Billing / AFP, COPENHAGEN

The Nordic model, known for high taxes and its cradle-to-grave welfare system, is getting a radical makeover as nations find themselves cash strapped.

During the post-war period, the Scandinavian economies became famous for a softer version of capitalism that placed more importance on social equality than other western nations, such as Britain and the US.

However, globalization, economic necessity and an ideological shift to the right has led to a scaling back of the public sector.

In Sweden, visitors are sometimes surprised to learn about year-long waiting times for cancer patients, rioting in low-income suburbs and train derailments amid lagging infrastructure investment.

“The generosity of the system has declined,” University of Gothenburg political science professor Jonas Hinnfors said.

“Much of this already started changing in the 1980s and especially in the 1990s,” he added.

In the wake of a banking crisis in the early nineties, Stockholm scrapped housing subsidies, reformed the pension system and slashed the healthcare budget.

A voucher-based system that allows for-profit schools to compete with state schools was introduced, and has drawn attention from right-wing politicians elsewhere, including Britain’s Conservative Party.

Income tax in Sweden is now lower than in France, Belgium and Denmark, and public spending as a share of GDP has declined from a record 71 percent in 1993 to 53.3 percent last year.

Once the darling of progressives, Sweden has become a model for free-market-leaning thinkers, including British weekly The Economist, which last year hailed the scaled-down Nordic model as “the next supermodel.”

“They offer a blueprint of how to reform the public sector, making the state far more efficient,” the magazine said.

This month, the Wall Street Journal praised tax cuts and entitlement reforms in Sweden and Denmark that “are now discomfiting their big-government admirers overseas.”

Although polls show strong support among Swedes for the income tax cuts of the past few years, the leftist opposition looks set to win this year’s general election.

The Social Democrats, in power for much of last century, have been boosted by a string of scandals in private elderly care homes involving degrading treatment of their residents, and by plummeting school results in international rankings.

However, it is unclear how the administration will finance an improvement of public services, having already pledged to keep the popular income tax cuts.

If Sweden is the Nordic country to have gone the furthest in shrinking its welfare state, Denmark has moved the fastest.

When its Social Democratic government took power in 2011, there was little to suggest Danish Prime Minister Helle Thorning-Schmidt would make any dramatic changes to the country’s cherished welfare state — funded by the world’s highest tax burden.

After a center-right government raised the retirement age and reduced the unemployment benefits period from four to two years, “Gucci Helle” — as she is known among her detractors — went on to cut corporate taxes to 22 percent from 25 percent.

Other reforms have included requiring young people on benefits to undertake training and withdrawing student aid from those taking too long to finish their studies.